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11|16|2009 01:57 pm EDT

Domain Names as Property Subject to Creditor Claims – Bosh v. Zavala

by Venkat Balasubramani in Categories: Legal Issues

The following is a guest post by Venkat Balasubramani – Venkat is a co-founder of Focal PLLC, a law firm focused on internet and technology issues. He blogs at Spam Notes and Professor Eric Goldman’s Technology & Marketing Law Blog. Follow him on Twitter: @VBalasubramani. This post was previously posted at Professor Goldman’s Technology & Marketing Law Blog.

Most people take it for granted that domain names are property. As such, there shouldn’t be much dispute that domain names are subject to the claims of judgment creditors. But I’ve seen enough resistance to this position that I thought a recent case was worth a quick mention. This recent case (Bosh v. Zavala (08-CV-04851-FMC-MANx) (C.D. Cal. Sept. 24, 2009)) also raises some interesting questions about the mechanics of trying to use a domain name to satisfy a judgment. This topic was also recently covered here on Domain Name News. For more perspectives, see Marc Randazza’s post on this case here; see also NYT; Deadspin.

Background: One of the early and often-cited cases for the proposition that a judgment creditor cannot get a domain name is Network Solutions, Inc. v. Umbro Int’l, Inc., 259 Va. 759, 770 (Va. 2000). In Umbro, the Virginia Supreme Court held that “a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time…[but this] contractual right is inextricably bound to the domain name services that [Network Solutions] provides.” Umbro concluded that the domain name registration agreement was a “contract for services” (which was not subject to “garnishment”) rather than property. (Umbro was preceded by the Eastern District of Virginia’s decision in Dorel v. Arel where the court punted on the “issue of whether a domain name is personal property subject to [a lien]” because the judgment creditor could take advantage of an easier, practical solution: “the registrar’s policies.”)

Kremen v. Cohen: Enter Kremen v. Cohen, decided by the Ninth Circuit in 2003. Kremen cast a shadow over Umbro. Kremen involved an action for conversion where the underlying property was a domain name. One of the big questions in front of the court was whether a domain name was property which could support a claim for conversion. The court pretty definitively answered that a domain name was property and therefore could support a claim for conversion. Following Kremen, courts started to realize that since domain names are property, they should be subject to the claims of judgment creditors. (See Office Depot, Inc. v. Zuccarini, 621 F. Supp. 2d 773 (N.D. Cal. 2007).) More recently, in Bosh, Judge Florence Marie-Cooper of the Central District of California allowed Toronto Raptors basketball player Christopher Bosh to seize a slew of domain names held by Luis Zavala, based on a cybersquatting judgment obtained by Bosh.

The key conceptual question to resolve is whether domain names are freely transferable, or whether domain name registration services are contracts personal to the registrant. Given the emergence of the flourishing secondary domain name market, you would think there would be no dispute as a practical matter as to whether domain names are freely transferable. But it’s not as hard you may think to encounter people who argue that domain names are just personal contract rights. For example, in 2009, Network Solutions took this position in the Kentucky domain name case where the Kentucky AG tried to seize numerous domain names based on the fact that they were “gambling devices” used in contravention of Kentucky law. (See pages 7 through 11 of their amicus brief filed in Kentucky: [pdf].) The Kentucky AG’s decision was on questionable legal grounds for a variety of reasons, but I was surprised to see Network Solutions’ reliance in its amicable brief on Umbro.

From a practical standpoint, the big question is whether a judgment debtor has assets that can be sold to satisfy a judgment. If there are such assets (whether in the form of domain names or otherwise), most courts are going to find a way to let the judgment creditor get at them. There may be tweaks around whether the particular statute in question covers a certain type of property (see, e.g., Palacio Del Mar Homeowner’s Association, Inc. v. McMahon, 174 Cal. App. 4th 1386 (2009) (domain names are not subject to “turnover order,” coincidentally, the same type of order Bosh obtained)), but it’s a mistake to see these cases as somehow rejecting the theory domain names are properly subject to the claims of creditors. One caveat: even if domain name registration services are not contracts personal to the registrant, not every domain name can be easily bought and sold. As discussed in a moment, certain types of domain names – including potentially those involved in Bosh – are tougher to monetize without stepping on the toes of third parties.

Process Questions: In Bosh, the domain names all related to the names of famous athletes and celebrities and were ordered “turned over” to Bosh. Bosh plans on distributing them to other athletes whose names the defendant was squatting on. (Bosh plays for the Toronto Raptors and the defendant squatted on the names of Bosh and many other athletes.) Bosh is somewhat atypical since Bosh didn’t really care about satisfying the judgment he obtained and probably will not undertake further efforts to collect. But one of the problems with Bosh is that it doesn’t set any sort of process to value the domain names. Is the defendant’s judgment satisfied based on the turnover? Who is to say? A turnover to Bosh is sort of an awkward result, and seemingly precluded by the statute (see McMahon), but Zavala was not around to contest the issues, so it is what it is.

A related problem is that Bosh would have a tough time selling the domain names, given that there would be little guarantee that any purchaser would steer clear of engaging in the same conduct that the defendant did in Bosh. The court in Zuccarini alludes to this. (See Zuccarini, 621 F. Supp. 2d at 778, fn. 7.) It’s unlikely a court would ever conclude this, but if Bosh decided to auction off the names that were turned over, would he be treading close to the cybersquatting line?

Back to the typical case. Some would argue there’s some sort of non-infringing use for all domain names, and that it’s up to the purchaser to figure out non-infringing uses. There are plenty of established auction houses that regularly deal in domain names (e.g., Moniker; Sedo). The best bet is to sell a domain name through a court-blessed third party auction. Theoretically, the market price at an auction will accurately reflect the assessment of purchasers as to how the domain name can be used. I guess a very rough analogy is that real property is freely exchangeable, but you can only use it without injuring the rights of your neighbors. No one argues based on the hypothetical nuisance claims of neighbors that real property is not freely exchangeable and therefore not subject to the rights of creditors.

At the end of the day, there are plenty of issues around the fringes, but domain names are likely not off limits for judgment debtors based on the theory that domain names are not “property”. Most courts will find a way to let judgment creditors get at domain names. That’s not to say that the process of seizing the names and disposing of them does not raise thorny issues.

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8 Comments

John Berryhill

November 16, 2009 @ 2:22 pm EDT

Thanks for the update in this vexing area.

One thing – it is perfectly normal for courts in different jurisdictions to disagree. I’d be curious to know whether Umbro was the last word on this in Virginia.

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uberVU - social comments

November 16, 2009 @ 4:26 pm EDT

Social comments and analytics for this post…

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Venkat

November 16, 2009 @ 5:01 pm EDT

John,

Thanks for the comment. I haven’t done an exhaustive search in Virginia, but I do know that people seem to still cite Umbro. I’ll have to take a look.

Venkat

Jorge

November 16, 2009 @ 10:25 pm EDT

Venkat:

Great summary of the issues!

I find the outcome to be completely preposterous, but IANAL.

Here’s an analogy: What if you gave the police a tip that helped catch a thief who had been robbing homes in your neighborhood. Should the judge grant you all the robber’s loot? And should the judge allow you, one of the victims, to be responsible for return the loot to the rightful owners?

It’s just weird to me that the court decided that Bosh would be a better owner for all those athlete’s domains than Zavala was.

Paul Keating

November 17, 2009 @ 3:57 am EDT

Jorge, The issue was not whether Bosh would be a better owner but rather did Zavala have property that could be attached? Bosh could just have easily have taken a car or a piece of real estate for all the court cared. For me it was interesting that the court actually allowed the transfer. As noted in the terrific article above California law only permits a judgment creditor to obtain an order that the property be turned over to the court for sale and the money be used to satisfy the judgment. In the case of an intangible such as a domain, the Code of Civil Procedure requires a 2-step process – 1st to levy and attach the property and 2nd to petition the court for an order that it be sold. I see the Bosh decision as an appropriate result but at the expense of not having followed the law. There is a great post on this at http://www.digitalmedialawyerblog.com/2009/10/the_domain_name_as_collateral.html which deals with the problems of domains as collateral.

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jorge

November 19, 2009 @ 6:03 pm EDT

Paul:

You make a lot of sense.

The whole thing seems weird, but Bosh does come out smelling pretty good.

— Jorge.

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